ECON6000 Module 1 Short Written Problems - Assignment Solution

Problem A

Summarized production capacity

1: Production Possibility Frontier

2: What is Production Possibility Frontier?

A “Production Possibility Frontier” (PPF) is a curve representing the maximum possible output for the two products. The factors affecting PPF are capital, labour, technology and other resources that will dictate where the curve should lie. In other words, the PPF curve shows the production possibilities of two products at a time when resources are fixed (Kenton, 2019). The above PPF chart represents the production combination for Schmeckt Gut Energy Bar and Schmeckt Gut 2.0 having the fixed resources and capital. 

3(a): Possible assumptions to meet an increase in demand at district D by 4000 Schmeckt Gut 2.0 and 20000 Schmeckt Gut Energy Bar

The companies commonly assume four main assumptions underlying the possible shifts in demands of the two products. The common assumptions are:

1. Fixed resources to produce both products;
2. Shifts in technology  
3. Resources are used to produce both of only 2 goods, and 
4. Resources are used in an efficient way (QuickSprout, 2012).

However, in the case of Schmeckt Gut, there is an increase in demand for Schmeckt Gut 2.0 by 1000 bars and an increase in demand for Schmeckt Gut Energy Bar by 2000 bars. the increase in demand for both products can be difficult to manage. In this case, a demand for both energy bars is 1000:2000 respectively. According to the production summary, Schmeckt Gut originally produce 3000 bars of Schmeckt Gut 2.0 and 18000 bars of Schmeckt Gut energy bars, which have increased to 1:2 ratio. It means that in order to produce additional 2000 bars of Schmeckt Gut and additional 1000 of Schmeckt Gut 2.0, Schmeckt Gut need to allocate the resources respectively. 

The possibilities to meet the shifts in demands can be:

1. More factors of production can be employed to the production of energy bars;
2. Investments can help in meeting the increased demand for both products; and
3. Better technology to increase production capacity.